Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Dividends, Buybacks, and Spin-Offs—That’s All There Really Is

Thursday, January 10th, 2013
By for Profit Confidential

Dividends, Buybacks, and Spin-OffsEvery once in a while, the stock market gives you a gift—rather, a company trading on the stock market decides to make a division a spin-off, unleashing value for shareholders. It doesn’t happen very often, but when it does, it usually turns out to be a big gift for the owners.

There were two big spin-offs this year, and one in particular was exceedingly profitable. ConocoPhillips (NYSE/COP) divested its oil and gas refining business called Phillips 66 (NYSE/PSX). For every two shares held in ConocoPhillips, shareholders received one free share in Phillips 66 (NYSE/PSX). On the stock market, ConocoPhillips’ share price declined because of the huge spin-off, but Phillips 66 has been doing well. The result was a huge bonus to shareholders, and both these stocks pay solid dividends. Phillips 66’s stock chart appears below:

 

Phillips 66 Chart

 

Chart courtesy of www.StockCharts.com

  • Double your money every year for 24 years running?

    Since 1989, we've made 912 option picks, with an average annualized profit of 166.17% per recommendation.

    All from Lombardi's best option picks!

    Click here to learn more.

The other big spin-off this year was with Kraft Foods Inc. In a previously announced move, Kraft Foods split its operations into Kraft Foods Group, Inc. (NASDAQ/KRFT) and Mondelez International, Inc. (NASDAQ/MDLZ), which are both large-cap, dividend-paying stocks. This deal was made on a one-for-three basis, with Kraft Foods Group being the food and beverage company and Mondelez focusing more on snacks and confections. Kraft Foods Group’s stock market chart appears below:

 

Kraft Foods Group Inc Chart

 

Chart courtesy of www.StockCharts.com

Corporate spin-offs are typically beneficial to shareholders. Without a corporate spin-off of a particular business or division, the marketplace can’t really attribute a value to such a business as part of the group. This is why large, institutional investors often advocate for spin-offs of non-core business operations.

Of course, the big bonus for shareholders and the stock market comes when the new spin-off goes up in value like Phillips 66. Not only did the spin-off itself create wealth for shareholders on the initial valuation and listing on the stock market, but the rising share price is pure gravy for stockholders.

As we all know, real growth is getting to be a hard thing to come by. We’re going to see many more increased dividend announcements, share buybacks, and corporate spin-offs to keep shareholders happy. (See “Dividends Going Up Because Companies Don’t Want to Invest.”) When you’re stuck in a period of slow economic growth, spin-offs are really all that a large corporation can offer.

The stock market right now is still kind of jittery about fourth-quarter earnings season; the third quarter wasn’t particularly good. My view is that there’s not a lot of new action to take in this stock market. The next big correction should be a good buying opportunity.

VN:F [1.9.22_1171]
Rating: 10.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)
Dividends, Buybacks, and Spin-Offs—That’s All There Really Is, 10.0 out of 10 based on 1 rating

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. is a Senior Editor at Lombardi Financial specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. Add Mitchell Clark to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.